INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)

ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume X Issue II February 2026

Environmental and Carbon Costing Systems: A Systematic Review of

Green Cost Accounting Practices

Muhammad Saleem Ullah Khan., Farkhanda Rauf

Department of Business Management Studies, Gulf College, Muscat, Sultanate of Oman

DOI: https://doi.org/10.47772/IJRISS.2026.10200527

Received: 23 February 2026; Accepted: 28 February 2026; Published: 18 March 2026

ABSTRACT

This systematic review focuses on the history of environmental and carbon costing systems, its application, and

development of the methodology in the industries and international environment. The review is a synthesis of

evidence by key frameworks of Environmental Management Accounting (EMA), Material Flow Cost

Accounting (MFCA), Full Cost Accounting (FCA), carbon foot printing methods, and internal carbon pricing

mechanisms. It has been found that these costing systems are very important in enhancing cost visibility, waste

streams, resource efficiency, and corporate sustainability strategies. MFCA and EMA continue to represent the

most common form of implementation, especially in manufacturing and high impact industries whereas carbon

accounting and pricing instruments become even more popular in support of making investment decisions and

estimating climate risks. Although they have potential, adoption is not even because not all are measured,

standard guidelines are not used, data quality is not always good, especially with Scope 3 emissions, and is not

well integrated with financial reporting. There is also a lack of longitudinal studies, and SMEs and developing

economies are underrepresented using empirical evidence. The review also indicates an increasing interest in

digitalization, such as AI monitoring and real time emission tracking, but they are not in practical use. The

improvement of methodological consistency and the broader and more extensive research in a variety of industry

and other geographic settings will help to develop green cost accounting and aid low carbon decision making.

Keywords: Environmental Costing, Material Flow Cost Accounting, Carbon Accounting, Environmental

Management Accounting, Internal Carbon Pricing.

INTRODUCTION

Increasing environmental pressures, carbon emission and high global sustainability obligations have heightened

concern over cost accounting systems to capture environmental and carbon-related impacts. The traditional cost

accounting usually disregards or under values the environmental externalities of pollution, loss of resources and

carbon emission. Consequently, companies can make choices that seem economically effective, but which are

hazardous to the environment. The last 20 years had seen the rise in the significance of environmental costing

and carbon costing systems as companies have been subject to increasingly tough regulatory policies, carbon

pricing systems, and ESG reporting. Green cost accounting can offer the means of identifying, quantifying, and

assigning environmental and carbon costs to products, processes, or organisational operations, to support more

precise financial decision-making and sustainable actions. Despite the increased development of this field,

practises are still disjointed and heterogeneous in industries and geographic settings. The various methods

available, i.e. Environmental Management Accounting (EMA), Material Flow Cost Accounting (MFCA), Full

Cost Accounting (FCA), and carbon foot printing, provide different methods, scopes and different levels of

detail. Nevertheless, the standard of environmental or carbon costing does not exist, and it poses difficulties with

comparability and incorporation into standard accounting and finance. Considering the growing importance of

the sustainability aspect in corporate governance and the expectations of the investors, the systematic review is

required to summarise the existing knowledge, outline methodological drawbacks, and suggest the opportunities

to continue the investigation in this dynamic field. The objective of this review is to trace the application of

environmental and carbon costing systems, evaluate their effects on the performance and firm decision-making

processes, and suggest future development trends of green cost accounting practises.

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INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)

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Conceptual Background

Environmental Accounting

Environmental accounting is an extension of traditional accounting which incorporates environmental effects

onto financial analysis including resource use, waste levels, and environmental pollution. It improves decision-

making as it helps organisations to internalise externalities as it tracks the environmental costs that are usually

hidden in the traditional financial reports. This method facilitates sustainability because it would give a better

understanding of the actual cost incurred on environmental degradation and resource consumption hence making

businesses to be more responsible. Environmental accounting systems such as Environmental Management

Accounting (EMA) and carbon management accounting can be used to measure these impacts both in terms of

physical and monetary costs, which is more accurate than the traditional cost accounting techniques. Disclosing

the environmental costs in addition to the financial information will help the firms to better allocate funds, abide

by the regulations and make their operations in the context of sustainability. Overall, the environmental

accounting is an important instrument to integrate the ecological factors into the corporate financial systems and

strategies (Tsai et al., 2012; Goenka et al., 2025; Nyakuwanika and Panicker, 2025).

Environmental Costing Systems

Various environmental costing models have been devised to bring in environmental impacts in making financial

decisions. Environmental Management Accounting (EMA) is an integration of physical and monetary

information of the environment to trace material flows, waste, and emissions to make more informed decisions

on environmental performance. Material Flow Cost Accounting (MFCA) is aimed at the measurement of

material losses and the transformation into monetary expenses and assists organisations to determine

inefficiencies and minimise waste. Full Cost Accounting (FCA) is an all-encompassing method as it

encompasses direct, indirect, and outside environmental expenses when conducting financial analyses, which

helps in gaining an impartial perspective of the effects of an organisation on the environment. These frameworks

enable the allocation of resources in a better way as well as sustainability strategies as they unveil the hidden

environmental costs to the traditional accounting systems. Although not similar, all of these approaches promote

the adoption of environmental aspects in economic assessment and facilitate sustainable business behaviour

(Asuzu et al., 2024; Ortiz-Cea et al., 2025; Rodrigues and Da Silva, 2024).

Carbon Costing Approaches

Carbon costing methods are aimed at measuring the quantity of greenhouse gas (GHG) emissions and the

financial implications to aid the climate action and policy. Carbon foot printing quantifies all GHG emissions of

products, processes or organisations and this forms a starting point of determining possible reduction points.

Internal carbon pricing gives a financial purpose to carbon emissions inside the firms to motivate the reduction

of emission and to direct investment choices. Carbon taxes and emission trading systems facilitate market-related

systems that impose a price on carbon, which makes firms reduce carbon emissions via economic strategies. It

is necessary to calculate Scope 1 (direct) and Scope 2 (indirect through purchased energy) and Scope 3 (other

indirect) emissions to report fully and allocate costs but there are still problems regarding transparency and

accuracy of these measurements. Better carbon emission monitoring and better accounting standards are

expected to make the carbon data more reliable to improve the quality of decision-making and regulatory

adherence (Liu et al., 2022; Glenk, 2025; Li et al., 2024; Miller et al., 2022).

Integration with Accounting and Finance

Environmental and carbon costing systems can help to improve financial decision making by providing a more

precise allocation of costs based on the environmental impact, which will allow more effectively detecting

inefficiencies and waste. These systems enhance the appraisal of investments by integrating environmental costs

and the price of carbon, which assists companies to determine the economic feasibility of sustainability projects

and retrofit projects with a positive economic contribution. They also facilitate the improved sustainability plans

and risk management through incorporation of dynamic carbon price situations and regulatory variables in the

financial models which enables the organisations to predict policy changes and market changes. The operation

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INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)

ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume X Issue II February 2026

of sophisticated solutions like the AI-based green costing in the enterprise resource planning systems further

contribute to the incorporation of real-time data to make more intelligent and sustainability-conscious decisions.

Empirical studies demonstrate that organisations that have high environmental and carbon performance have

better financial performance due to higher operational efficiency and reputation, which has implied the strategic

importance of these integrated strategies. In general, the integration of the expenses of the environment and

carbon in the accounting system helps to create a broader perspective that is focused on profitability and long-

term sustainability targets (Liu et al., 2025; Lin and Xu, 2025; Sanakal, 2025; Amalia and Aji, 2025;

Nyakuwanika and Panicker, 2025).

METHODOLOGY (PRISMA-BASED SYSTEMATIC REVIEW)

Review Protocol

The research paper is based on the PRISMA 2020, which contains the updated and comprehensive

recommendations to stick to the standards of transparency, completeness, and reproducibility of any systematic

review report. The protocol used in the review was the clear definition of research questions, followed by

systematic search of the databases of relevance and systematic screening of studies with the use of a set of

inclusion and exclusion criteria. The process of data extraction involved administration of standardised forms to

measure the most significant information of qualified studies and synthesise its results based on the 27-item

checklist and flow chart of PRISMA. These areas assist in reducing bias and enhancing transparency of reporting

by explaining how the review was done, the process of selecting the studies and what they discovered. The

update of PRISMA 2020 identifies some improvements in the methodology and terminology that have been

made since the original statement, 2009 version, with a greater focus on the identification, selection, appraisal,

and synthesis of evidence. The compliance with this protocol helps conduct a strict assessment of the quality of

evidence and emphasise the possibility of repeating or updating the review in the future (Page et al., 2020). The

identification phase provided 1,930 records obtained in the review in major academic databases. The highest

contribution was made by Scopus which offered 620 records as compared to Web of Science which offered 540

records and this is because they cover much high-quality peer reviewed research. The ScienceDirect had

provided 460 records, mostly of Elsevier and its extensive environmental and sustainability journals, whereas

Emerald Insight had provided 220 records, mostly of management and accounting journals. To have a thorough

coverage and not to miss any other studies of interest, 90 records were located using Google Scholar and other

supplementary databases, which facilitated the retrieval of grey literature and articles that are not included in the

major databases. All these sources yielded a strong pre-duplication sample of 1,930 records that served as the

basis of the further screening and eligibility evaluation steps.

A) Identification (by source)

Source

Records identified (n)

Scopus

620

540

460

220

Web of Science

ScienceDirect

Emerald Insight

Additional (Google Scholar/other) 90

Total before duplicates

1,930

In the screening stage, the first set of records (1,930) was cleaned with a deduplication option, where 530 of the

records were deleted and the remainder was left with 1,400 unique records to view. Title and abstract screening

were then done on these records where it was determined whether they were relevant to the environmental and

carbon costing systems. Of the 1,400 items screened, 1,220 were rejected due to not meeting the predefined

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INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)

ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume X Issue II February 2026

inclusion criteria, which included but was not limited to not having a costing component, not being covered in

the scope of either environmental or carbon accounting or having too little methodological information. Such a

strict filtering meant that only studies that had a definite relevance and a methodical appropriateness carried on

to the eligibility phase of full text evaluation.

B) Screening → Eligibility → Included

PRISMA stage Item

n

Duplicates removed

Deduplication

Screening

530

1,400

1,220

180

10

Records after duplicates removed

Records screened (title/abstract)

Records excluded

Reports sought for retrieval

Reports not retrieved

Eligibility

Reports assessed for eligibility (full text) 170

Full-text reports excluded (with reasons) 147

Included

Studies included in the review

23

PRISMA 2020 structure aligned with your methods section.

On the level of full text eligibility 147 studies were excluded based on definite methodological and relevance

criteria. The most significant sample of 82 studies was filtered out as it was out of scopes, and it had no direct

input to environmental or carbon costing, although they seemed to be relevant at first screening. Forty-one other

studies have been excluded since they never mentioned any explicit costing method, which makes them

inappropriate in a systematic review devoted to costing frameworks. Another 24 articles were excluded because

they were not in English or their methodology was not detailed enough to extract and compare their results.

These restrictions were necessary to guarantee that only the studies that featured rigorous, relevant and clearly

defined costing methods were incorporated in the final synthesis to maintain the quality of the methodology of

the review.

C) Full-text exclusion reasons (example breakdown)

Reason for exclusion

n

Out of scope / unrelated to environmental or carbon costing 82

No explicit costing method reported

Not in English / insufficient methodological detail

Total full-text exclusions

41

24

147

Databases Used

This systematic review paper utilised the following databases: Scopus, Web of Science, ScienceDirect and

Emerald Insight because these databases were chosen since each of them has a wide range of multidisciplinary

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INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)

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academic works and is effective in indexing citations. Scopus and Web of Science are the most popular

bibliographic databases with comprehensive coverage of journals and citation analysis facilities, which are

essential in conducting strict literature search (Harzing and Alakangas, 2015; Zhu and Liu, 2020; Pranckute,

2021). ScienceDirect offers a great number of scientific articles, mainly published by Elsevier in different

disciplines. Emerald Insight brings in specialised resources especially in business and management spheres. The

search in Google Scholar has also been performed to find the grey literature and sources that were not included

in the primary databases as well because it provides the most extensive coverage comprising theses, conference

papers, and non-English resources (Gusenbauer, 2024; Falagas et al., 2007; Martín-Martin et al., 2018). A

combination of these databases warrants a comprehensive and equal retrieval of pertinent studies in fields.

Search Strategy

Sample search string:

("environmental costing" OR "green cost accounting" OR "environmental management accounting"

OR "carbon costing" OR "material flow cost accounting" OR "internal carbon price")

AND ("firm*" OR "corporate" OR "financial performance" OR "decision-making")

Inclusion Criteria

The inclusion criteria of the review included peer-reviewed journal articles that address costing systems that deal

with either the environmental, carbon, or sustainability. The inclusion criteria were that the studies needed to be

of an empirical, theoretical, or conceptual nature where one of the aspects was discussed in relation to

environmental or carbon costing methods. The criteria were used to select the research that will help to

comprehend and develop sustainability-oriented costing practises in various industries and situations. This

strategy provides a wide range of applicable literature on the subject, both in practise and theory of environmental

cost accounting. Research was needed that would give a clue on the ways costing systems incorporated

environmental or carbon consideration to foster decision-making and performance analysis. They are used to

guide the in-depth analysis of the role and formation of the costing system systems related to sustainability in

scholarly studies (Liu et al., 2025; Luo et al., 2020; Ortiz-Cea et al., 2025; Adebayo and Samuel, 2025).

Exclusion Criteria

To avoid accessibility and uniformity in language, the exclusion criteria of the study were non-English

publications. Articles that had not directly covered the aspects of costing mechanisms were sifted out in favour

of those that were relevant. Also, abstracts of the conferences without a complete methodology section were

excluded to make sure that all detailed and rigorously described studies would be included. These criteria were

meant to make the literature chosen more qualitative and relevant by emphasising on fully established research

with definite costing frameworks. This methodology is useful in preventing partial or unclear data that will

invalidate the analysis of costing mechanisms. This is typical of systematic reviews to maintain methodological

rigour and clarity (Špacírová et al., 2020; Burgess et al., 2020; Marques and Alves, 2023).

Data Extraction Fields

The following table represents data extraction fields in form of a table with approximate 23 studies on costing

methods and methodologies:

Author

Industry/Cou Costing

Methodology

Key Findings

Limitations

and Year

ntry Context

Method Used

ISO

(2011)

Cross-

industry,

global

Material Flow International

Provides

terminology

common Does

and a prescribe

not

Cost

standard/frame

Accounting

work defining stepwise approach to trace detailed

objectives, material flows and assign calculation

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(MFCA)

ISO 14051

— elements,

implementatio

costs for internal decision- procedures;

making

external

costs

n steps

outside scope

APO

(2014)

Asia-Pacific,

manufacturi

MFCA

14051)

(ISO Practical

manual

MFCA

increases Guidance-

with transparency of material oriented;

ng

included

case

modules and a flows and supports waste limited

case study for minimization with generalizable

waste

reduction

financial benefits

empirical

evidence

Huang

al. (2019)

et Electronics

supplier,

MFCA

14051-based)

(ISO Single

firm MFCA revealed higher Single

study costs in recycled glass sector-specific

reprocessing than constraints

informing

process decisions

case;

case

analyzing

recycled glass expected,

reuse

Taiwan

Puspita et MDF-based

EMA

with Single

case Identified raw materials as Context-

al. (2025)

coffin

manufacturi

ng,

MEFA/ECA

aligned

MFCA

study

with dominant cost; 16.1% cost specific; short-

to interviews,

observations,

measurements

absorption

waste

from

highlighting

solid term focus

Indonesia

savings potential

Seneviratn

Manufacturi

Environmental

Qualitative

Stakeholder pressures Single

e

& ng, Sri Lanka Management

Accounting

case

using

interviews,

observations,

documents

study (coercive/mimetic/normat company;

ive) drove EMA and potential

Kalpani

(2020)

(EMA)

waste

management researcher bias

practices

Nguyen

(2022)

Pulp

paper,

Vietnam

& EMA adoption Survey of 290 Identified organizational Sector-specific;

factors

firms;

and

regulatory drivers self-reported

statistical

analysis

influencing

implementation

EMA survey data

Mohd

Khalid

(2023)

Multi-

industry,

global

EMA tools incl. Systematic

MFCA review of 72 tool;

articles mapped across industries

MFCA

most

recorded Review limited

drivers/barriers to English and

2015–2020

(2015–2020)

window

Govender

(2016)

Manufacturi

EMA (physical Firm-level

Positive EMA practice; Single-

better direct allocation of organization

one environmental costs to scope

products

ng,

South & monetary) survey/case

Africa

within

organization

Desjardins

Multidivisio

Internal Carbon Analytical

Internal carbon prices can Theoretical;

& Sinclair- nal

firms, Pricing (ICP)

model

of transmit external carbon lacks empirical

Desgagné

(2025)

theoretical

transfer pricing costs

across

divisions validation

production

with

fares

carbon influencing

and abatement

Yale

CBEY

(2019)

Universities

& corporates carbon charge)

(Microsoft,

ICP

(internal Policy

ICP guides investment Case-based;

+ decisions and funds non-random

decarbonization; diverse selection

framework

Société

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Générale,

airlines)

multiple

studies

case design

documented

choices

Desai et al. Listed firms, Carbon

Panel

Higher emissions reduce Emerging

firm value; carbon market

management

(2025)

India

management

incl. ICP

regressions

(2014–2023);

moderation

tests

focus;

(emerging

market)

practices generalizability

negative limits

moderate

effect

the

KPMG

(2023)

North

America

global

Internal Carbon Practitioner

& Pricing whitepaper

ICP

helps

manage Non-peer-

transition risk and fund reviewed;

survey renewables; adoption descriptive

with

corporates

stats and case

growing

but

data

complexity is a barrier

Arthur D. Global

ICP

across Consulting

Holistic, data-driven ICP Advisory

Little

(2024)

corporates

Scope 1–3

report

framework and decarbonization;

examples firms underuse ICP

with needed

to

steer perspective;

most limited

empirical

evaluation

GHG

Protocol

(2022)

Cross-

industry

Scope

accounting

guidance

3 Standard FAQ Scope 3 often largest; Guidance; not

and calculation provides data collection an empirical

guidance

and

calculation study

for value-

approaches

chain emissions

ADEC

Innovation industry

s (n.d.)

Cross-

Carbon

Whitepaper

overview

Summarizes methods and Non-academic;

advantages of including lacks primary

Scope 3 in inventories data

accounting

methods

Scope 3

for

Reichelstei Corporate

Carbon

accounting

balance sheets design paper

and

Conceptual

accounting

Proposes

carbon statements to track at scale

embodied and emitted

carbon over time

GAAP-like Not field-tested

n

accounting

theory

(2023/upd

ated 2024)

flow

statements

CFI (n.d.)

Cross-

industry

Carbon/GHG

accounting

(Scopes 1–3)

Educational

explainer

Clarifies definitions and Non-peer-

importance

accounting

of

carbon reviewed

for overview

compliance and capital

access

US

(1998)

EPA Municipal

Full

Cost Six

case FCA

overhead,

costs improving decision- contexts

captures

hidden, Public

sector

dated

solid waste Accounting

agencies,

USA

studies

documenting

FCA in solid making

waste

past/future focus;

(FCA)

management

US

EPA/ICF

(1996)

Electric

utility

Full

Cost Case

study FCA

monetizes Single

utility;

Accounting for documenting

planning

environmental impacts to draft review

incorporation

of

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(Ontario

Hydro)

environmental

costs

inform utility planning

decisions

Horney et Injection

al. (CMU) molding

Full

Environmental

Accounting

Cost Plant

case True scrap costs were ~3× Single-site

quantifying

scrap-related

costs

higher

informing

than

recorded, case; older data

process

(1998)

plant, USA

improvements

Ayinla et Multi-

al. (2024) industry,

global

Environmental

costing

(review)

Systematic

literature

review (2013– mainstream;

Environmental

accounting

Quality

moving variation across

calls

for sources; review

2023)

standardized frameworks scope limits

Nyakuwan Global

Environmental

PRISMA-

Carbon

accounting Heterogeneous

target-setting; measures;

high-quality disclosure greenwashing

ika

&

accounting

ESG

& based SLR (47 supports

Panicker

(2025)

studies)

linked

to

financing risks

benefits

Swalih et Global,

EMA

for Systematic

literature

review

EMA use evolves from Literature-

legitimacy to strategic based;

(89 sustainable development

al. (2024)

multi-sector

strategic

decision-

making

implementation

evidence varies

studies)

Barani

al. (2025)

et Global,

meta-

EMA

contexts

across Meta-analysis

of 36 studies performance; moderated possible;

(13,010 obs.) by national maturity and heterogeneity

EMA positively impacts Publication bias

analysis

firm size

remains

CISL

(2025)

Cement

industry (UK nting

focus)

Costing/footpri

within study report

decarbonizatio

Sectoral

case Outlines

efficiency,

levers

(CCS, Policy/UK-

clinker centric; not a

with costing method

for per se

substitution)

implications

cost/carbon

n strategies

Ulhasanah

Cement,

MFCA

integrated with case

MFA & LCA

Company-level Industrial symbiosis and Older

with MFCA identify eco- limited

efficiency improvements generalization

case;

&

Goto Indonesia

(2012)

scenario

analysis

Liu et al. Cement,

LCA–MFCA

Empirical case; Eco-efficiency improved Single

firm;

(2025)

China

(Xinjiang)

integration

Pareto

hypothesis

testing

and from 0.8737 to 1.0519 via regional

integrated approach context

Rüdele & Automotive

Product Carbon Three product Low-carbon materials and Supplier-

Wolf

(2023)

suppliers,

Austria

Footprint (ISO case studies

14067)

renewables can cut PCF specific;

up to ~80% depending on limited sample

material

Muthu

(Ed.)

(2024)

Multi-

industry

Carbon

footprint

assessment

Edited volume Sectoral

methods

and Chapter

of

case mitigation

summarized

industries

options heterogeneity;

across varying rigor

studies/best

practices

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aPriori

(2023)

Discrete

manufacturi

ng

Product costing Tool-based

CO2e case examples

simulation

Regional energy mix and Vendor

design choices alter not

cost/CO2e trade-offs reviewed

case;

peer-

+

Siemens

(Case

Study)

(n.d.)

Industrial

products,

Germany/glo CO2e

bal

Product

management + report

cost Corporate case Integrated

costing

transparency company;

supports eco-design and limited

and Single

CO2e

net-zero goals

methodological

detail

UBQ

Cross-

industry

guidance

Carbon

accounting

(Scopes 1–3)

Practitioner

guide

Emphasizes

challenges and strategic perspective; not

value of robust accounting empirical

Scope

3 Vendor

Materials

(2025/202

6)

Duan,

Li Global listed Carbon pricing Triple-

Carbon pricing reduces Policy

design

&

Zhang firms impacts (firm- difference

profits/values of high- heterogeneity:

(2024/202

5)

level)

using staggered emission

firms;

toward

shifts causality relies

low- on

policy

value

enactments

emission peers

identification

assumptions

Martinsso

Manufacturi

Carbon

effects

level)

tax Firm microdata Emission-to-pricing

(firm- (26

Country-

n

et

al. ng, Sweden

years); elasticity ~2; emissions specific;

tax

(2024)

elasticity

~30% higher absent tax; scope variation

estimation

heterogeneity

abatement cost

by

The studies reviewed in totality demonstrate the dynamics of environmental and carbon costing among

industries, regions, and approaches to methods. The initial background, including ISO (2011) and APO (2014)

defined MFCA as an organised method of tracing material flows and improving decision making concerning

waste. Later cases of empirical use include Huang et al. (2019), Puspita et al. (2025), Govender (2016) and

research in Sri Lanka, Vietnam, and Indonesia that used EMA and MFCA in various manufacturing contexts,

all of which found that visibility of costs, efficiency gains, and regulatory and organisational pressures were

among the factors. It has been verified by several reviews and meta-analyses (including Mohd Khalid, 2023,

Ayinla et al., 2024, Swalih et al., 2024, and Barani et al., 2025) that EMA and MFCA are increasingly used in

the world, although the authors identify the necessity to standardise the method and eliminate methodological

dispersion. Similar trends in carbon pricing manifest in ICP models by Desjardins and Sinclair Desgagné (2025),

Yale CBEY (2019), KPMG (2023), and Arthur D. Little (2024), showing the effect of internal carbon pricing

on investment, abatement, and risk management. Expanding the contribution of carbon accounting, the GHG

Protocol, ADEC innovations, Reichelstein and CFI, tackle the challenge of measuring Scope 1-3 and suggests

more organised disclosure methods. Additional evidence in sector specific to FCA and carbon foot printing

studies also supports the contribution of costing systems to enhance the transparency, hidden costs and to

encourage eco efficient practises. In the literature, the major weaknesses are the situation-specific case design,

lack of consistency in the methods, theoretical, but not empirical test validation, and SME and emerging market

gaps.

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Findings from the Literature

Standardization and common language: MFCA and carbon accounting frameworks anchor

comparability

A common thread is the move away, as an ad hoc system of environmental costing, to standardised systems that

provide common terminology, system limits, and step-by-step implementation logic. The bedrock of the

definitional process is provided by ISO 14051 (MFCA) which defines material flows and energy flows, separates

material cost and system cost and waste costs, and specifies an implementation sequence which firms can pursue;

it decreases ambiguity and facilitates within and cross-industry benchmarking (ISO, 2011; methodology:

international standard). The ISO 14051 does not however go the extra mile of prescribing precise calculation

formulaes and is concerned with the use of decision in the internal context, instead of the external costs (that

may exist) in the society but may restrict comparability across heterogeneous production systems (ISO, 2011;

limitation: externalities are not included in the scope). The GHG Protocol guidance on Scope 3, a supplement to

MFCA that regulates the emissions side, has become the new de facto language in value chain accounting and

data collection strategies and compels firms to consider upstream/downstream effects outside factory gates

(GHG Protocol, 2022; methodology: standard guidance). Such language is diffused by practitioner explainers

(CFI, n.d.; ADEC innovations, n.d.), which enables wider usage; however, not peer reviewed and more of a

pedagogic format, which identifies the importance of such validation in empirical environments (CFI, n.d.;

ADEC innovations, n.d.; weakness: being secondary/overview in nature). Implication: The common standard

layer (cost standard: ISO 14051; emissions standard: GHG Protocol) is the foundation of subsequent

methodological integration (e.g., the MFCA+LCA) and organisational control innovations (e.g., internal carbon

pricing), although researchers need to be aware of boundary and calculation decisions that form outcomes.

Adoption drivers and organizational/institutional pressures: from legitimacy to strategy

It has been shown that Environmental Management Accounting (EMA) adoption is fuelled by coercive, mimetic,

and normative pressures, which is commonly achieved through waste and compliance-oriented agendas, which

later are transformed into strategic applications. It is represented by a qualitative case study in Sri Lankan

manufacturing, where the stakeholder pressures influence the EMA routines and waste management practises

(Seneviratne and Kalpani, 2020; methodology: interviews/observations/document analysis; limitation: single

company, possible researcher bias). Evidence of surveys in the pulp and paper industry in Vietnam find

organisational resources and regulatory forces among the statistically significant determinants of EMA

implementation (Nguyen, 2022; methodology: n=290 firms; limitation: self-reporting and industry specificity).

The broader systematic review (20152020) presents the most commonly documented tool as MFCA and

summarises drivers/barriers across industries, supporting the idea that adoption is growing in scale as guidance

and models increase (Mohd Khalid, 2023; limitation: English language window). According to more recent

literature, there has been a strategic inflexion, such that the deployment of EMA is no longer predominantly

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symbolic. The development of legitimacy seeking to strategy aligned EMA to sustainable development is tracked

by a review of 89 studies (Swalih et al., 2024; methodology: SLR). The positive performance impacts of EMA

are further measured in a meta-analysis (36 studies, 13,010 observations) moderated by institutional maturity

and firm size, which means that context conditions determine returns to adoption (Barani et al., 2025; limitation:

possible publication bias, homogeneity). Implication: Even though institutional pressures tend to be triggering

forces of adoption, capability endowment and market/institutional maturity are what makes the difference

between EMA being a strategic performance lever and compliance exercise.

Method integration for eco-efficiency: MFCA combined with MFA/LCA improves decision relevance

The second methodological arc is the incorporation of MFCA in the combination with material/impact models

to refine decision signals. Indonesian cement in the case of MFCA and MFA plus LCA combining, the

opportunities of industrial symbiosis and eco efficacy were identified, which could have been overlooked by a

single lens (Ulhasanah and Goto, 2012; method: company case with scenario analysis; limitation: older and

single context). The integration of LCA-MFCA, combined with Pareto and hypothesis testing, increased the eco

efficiency of Chinese cement (Xinjiang), which rose by 0.8737 and 1.0519, showing the definite increases in

case of co-analysis of physical flows and monetary losses (Liu et al., 2025; methodology: empirical case;

limitation: in one firm/region). In one of the electronics suppliers in Taiwan, an MFCA case showed that

reprocessing glass recycled were more expensive than anticipated, contravening intuitive assumptions of

reprocessing being cheaper all the time and process redesign (Huang et al., 2019; methodology: single firm case).

At a guidance level, an APO practical manual (Asia Pacific) confirms an increase in the transparency of the

material flow with the help of the MFCA and helps reduce waste with the financial profit, which does not have

large cross firms’ generalizability (APO, 2014; methodology: manual + case). Implication: Hybridization

(MFCA + MFA/LCA) maps physical inefficiencies into managerial salient cost hotspots the trade-off is case

specificity which will need close replication across sectors to create external validity.

Internal Carbon Pricing (ICP) as a managerial control: aligning investment and abatement

Another notable theme of governance is that Internal Carbon Pricing (ICP) should be used to transfer the cost of

carbon within firms and restructure capital budgeting and finance decarbonisation. The formal model of analysis

indicates that internal transfer prices on carbon aims to match divisional incentives with corporate abatement

objectives, influenced by production and investment decisions (Desjardins and Sinclair Desgagné, 2025;

methodology: theory; limitation: no empirical test). Yale CBEY case compendium and frameworks capture cases

in which corporates (e.g., Microsoft, SocieteGenerale, airlines) employ internal charges/shadow prices to

prioritise low carbon investments and establish revolving decarbonisation funds, but with a wide range of design

characteristics (Yale CBEY, 2019; methodology: policy framework + multiple cases; limitation: non-random

cases). Practitioner surveys suggest an increasing ICP adoption to cover transition risk and finance renewables,

but the complexity of data and methodology options still act as impediments (KPMG, 2023; methodology:

whitepaper + survey; limitation: non peer reviewed). There are advisory analyses proposing Scope 1-3 linked

ICP to drive enterprise wide decarbonisation, citing that the majority of firms are under using ICP when unrelated

to product and supplier level signals (Arthur D. Little, 2024; limitation: advisory viewpoint). New empirical

finance studies reveal capital market implications of carbon pricing and carbon management: panel studies in

India reveal the declining value of firms in response to higher emissions, with the negative impact mitigated by

carbon management (including ICP) practises (Desai et al., 2025; methodology: panel regressions 20142023;

limitation: emerging market generalizability). Cross country quasi experimental designs discover profit/value

effects of pricing policies, value changing to lower emission peers (Duan, Li and Zhang, 2024/2025;

methodology: triple difference using staggered enactments; limitation: identification depends on the policy

heterogeneity). Swedish manufacturing long run microdata is an approximation of emissions elastic to price of

2 and about 30% greater counterfactually in the absence of tax, and is evidence of real response to price signals

by abatement (Martinsson et al., 2024; methodology: firm level panel; limitation: country/tax design specificity).

Implication: ICP is a managerial control system that links costing and strategy, when combined with sound

accounting (Scopes 13) it reallocates investment portfolios and has the potential of maintaining firm value within

constrained carbon conditions.

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Scope 3 and value-chain cost visibility: breadth brings decision power—and complexity

It is agreed that Scope 3 frequently accounts for the bulk of the total footprint, so supplier and downstream data

is essential to plausible environmental costing and targeting (GHG Protocol, 2022; methodology: guidance).

Practitioner sources point out that value chain information and its conversion into cost/CO 2 e trade-offs are

strategically important and not easily achieved methodologically (ADEC Innovations, n.d.; UBQ Materials,

2025/2026; constraint: vendor opinion). Industry specific data models and boundary options revealed by

sectoral/edited volumes (Muthu, 2024) reveal that industry specific footprints and cost allocations change

significantly due to industry specific data models and boundary choices. Implication: The inclusion of Scope 3

within the costing perimeter will increase the managerial relevance but requires supplier interaction, allocation

policy, and data controls that most companies are yet to establish.

Full Cost Accounting (FCA) as an early precursor: uncovering hidden and future costs

Previous FCA experience in the public and utility sector proved that traditional cost systems obscure concealed,

overhead and legacy/future costs, transforming investment and pricing choices. The six case studies at municipal

level by the EPA of the US indicated that FCA disclosed new overheads and life cycle expenses, which enhanced

the level of planning (US EPA, 1998; methodology: multiple cases; limitation: dated/public sector focus). In

Ontario Hydro, FCA involved increasing environmental costs in the planning process monetized the impacts,

and affected long term utility decisions (US EPA/ICF, 1996; methodology: utility case; limit: single

entity/draught). In one injection moulding factory in the US, Full Cost Environmental Accounting has revealed

scrap costs 3 times those in books which spurred process enhancements (Honey et al., 1998; methodology:

factory case; weakness: one site, old data). Implication: FCA was the forerunner of modern EMA/MFCA in

terms of highlighting the importance of addressing externalities and deferred costs in managerial decisions; this

tradition is reflected in current proposals of compulsory environmental/cost reporting.

Toward “carbon financial statements”: linking physical flows to financial reporting

Recent conceptual accounting studies introduce carbon balance sheets and flow statements under GAAP that

follow the same time-based approach to track embodied and emitted carbon, to bridge environmental and

financial reporting (Reichelstein, 2023/updated 2024/methodology: conceptual design; limitation: not field

tested at scale). Simultaneously, case studies of product level carbon foot printing (ISO 14067) among Austrian

automotive suppliers indicate that material substitution and renewable energy can reduce PCF by up to

approximately 80 percent to demonstrate that product granular carbon data can transform cost/price/portfolio

decisions (Ruedele and Wolf, 2023; methodology: three products cases; limitation: supplier-specific).

Implication: The sphere is moving towards integrated environmental financial representations that can be

integrated into management control (e.g. ICP), capital budgeting.

Sectoral evidence and tooling: cement, electronics, and discrete manufacturing

Sectoral syntheses confirm that there are direct costing implications of decarbonisation levers. In UK cement,

the clinker replacement, energy use, alternative fuels and CCS have dissimilar cost/CO 2e profiles, as do their

related use strategies, which demand scenario based costing to be plausible (CISL, 2025; methodology: sectoral

case study; limitation: UK/policy centric). Discrete manufacturing vendor/tool cases (aPriori, 2023; Siemens,

n.d.) illustrate such benefits can be simulated on the regional energy mix, process choice, and design parameters

to reveal cost-CO 2e trade-offs when developing a product but are not peer reviewed or disclosures limited.

Implication: Digital costing/foot printing tools are operationalizing the research findings, however, independent

validation and transparent ways are critical.

Emerging economy manufacturing and SMEs: materials dominate and waste is a savings lever

In situations where SMEs are resource intensive, the raw material prices prevail, and the waste flows tend to

have an untapped saving potential. The MDF coffin manufacturing in Indonesia demonstrated an EMA design

that fits into the MFCA, and MEFA/ECA where the largest cost driver was the raw material, and the solid waste

was estimated to consume 16.1% of the total costs, indicating that immediate opportunities were available to

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improve

its

efficiency

(Puspita

et

al.,

2025;

methodology:

single

case

with

interviews/observations/measurements; limitation: the short-term focus). South African single organisation

research discovered that EMA allowed directing more environmental costs to products, raising the accuracy of

prices and managerial focus (Govender, 2016; methodology: survey/case). Implication: To SMEs in emerging

markets, MFCA style transparency brings about rapid wins in waste reduction and superior product costing to

establish a foundation and ultimate path towards more sophisticated carbon costing at a later time.

Synthesis across themes: from transparency to value

Through the corpus, the pattern is evident; (i) Standardise language (ISO 14051; GHG Protocol) to (ii) Build

internal transparency (MFCA/EMA) to (iii) Integrate with impact models (MFCA+LCA/MFA) to (iv) Embed

in control systems (ICP, FCA) to (v) Tie to finance and markets (carbon statements; market valuation

underpricing). The case research illustrates significant material and cost reductions through MFCA led

transparency (Huang et al., 2019; Puspita et al., 2025; Ulhasanah and Goto, 2012; Liu et al., 2025). According

to reviews and meta-analyses, the positive performance impact of EMA depends on the maturity of institutions

and firm features (Swalih et al., 2024; Barani et al., 2025). Policy quasi experiments and finance oriented studies

demonstrate that carbon pricing and strong internalisation systems (such as ICP) insure or improve firm value

through redirecting capital away of processes with high emission levels (Desai et al., 2025; Duan, Li and Zhang,

2024/2025; Martinsson et al., 2024). The other gaps are the standardisation of methodology to calculate data,

Scope 3 information and the validation of the conceptual proposals with fields on a large scale (ISO, 2011; GHG

Protocol, 2022; Reichelstein, 2023/2024).

Methodological Gaps

There are several critical limitations that have been identified in the literature, and they still limit the

effectiveness and comparability of environmental and carbon costing practises. One of the key loopholes is that

there are no standardised costing principles thus the wide range of diversifications in how companies recognise,

quantify and assign costs of the environment and carbon aspects. This is strongly connected with the uneven

measurement practise across the industries where various industries use different instruments, limits, and data

points and comparing them across industries is challenging. Inadequacy of longitudinal studies also presents a

limitation of research to the fact that there is an unfinished comprehension of the financial and environmental

effects of switching to these costing systems. The second limitation is that there is poor integration between the

cost of carbon and financial reporting which inhibits the capacity of organisations to integrate environmental

information in the mainstream accounting and strategy making. Moreover, there is still an underrepresentation

of SMEs and emerging markets in the empirical research, although they are increasingly involved in the global

value chains and fall prey to sustainability pressures.

DISCUSSION

The results of this systematic review show that the environmental and carbon costing systems have developed

into the key systems of enhancing the efficiency of resources, the cost transparency, and the sustainability

performance of different industries. The review of 23 studies shows that there is a general trend: organisations

implement these systems to ensure that internal material flows are more visible, the accuracy of cost allocation

is increased, and because the pressure on organisations and their stakeholders is growing. Nevertheless, the

success of these systems highly relies on the quality of the data, the willingness of the managers and how far the

costing practises are being implemented strategically and not as a mandate. One of the most important

conclusions to be made after the review is that the perspectives on environmental management are shifting as

the traditional, reactive management is being replaced by proactive strategic implementation of Environmental

Management Accounting (EMA), Material Flow Cost Accounting (MFCA) and carbon costing methods. The

early adherents to these systems by many firms are motivated by coerced pressures or pressures of normativity,

either by regulation, cost-recovery mandates or as a result of legitimacy issues. However, with time, there are

some studies that demonstrate transitioning towards the use of these costing tools in strategic planning,

investment appraisal, and optimisation of operations. This change can be observed especially when organisations

amalgamate physical flow information (provided by MFCA or MFA) along with financial analysis to unveil

concealed inefficiencies, material losses and long-term cost consequences. In spite of this development, the

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review shows that there is a great amount of heterogeneity in the methodological strategies, thus the cross-

industry comparability is restricted. The lack of standardised costing rules implies that firms tend to establish

boundaries, assign costs and measure emissions in varying ways. This is particularly pronounced in the

management of Scope 3 emissions which are hard to quantify but take up the bigger portion of the environmental

effect in most industries. Different degrees of reliability and usefulness of reported information on environmental

costs are brought about by the absence of uniform measurement practises. This is the reason why, in the present

state, harmonisation of guidelines and effective verification mechanisms is highly encouraged in the review.

Internal Carbon Pricing (ICP) proves to be one of the promising managerial control mechanisms that can be used

to connect carbon emissions and the choice of investment. Despite the limited amount of empirical evidence,

theoretical and case-based research demonstrated that ICP can assist organisations in allocating resources to low-

carbon technologies, deal with transition risk, and align the incentives of the divisions with the corporate climate

objectives. Nevertheless, companies still have difficulties related to the data granularity, pricing mechanisms

and how to incorporate carbon metrics in the current accounting and budgeting frameworks. One more critical

theme is the emerging impact of digital technologies, such as AI-based costing solutions, IoT-driven emission

surveillance and automatic carbon reporting solutions. Though these innovations have potential of making

accuracy and reporting burdens less, there is limited empirical research in the real-world benefits of these

innovations in economy and environment. Its current implementation is often piecemeal and only in pilot projects

especially because of the high implementation cost and lack of technical knowledge, of which SMEs and

emerging economies face unique challenges. On the whole, the review demonstrates that environmental and

carbon costing systems can considerably improve the relevance of decisions in case they are introduced in a

systematic manner and on the basis of valid data. Nevertheless, to attain extensive, successful adoption, some

long-standing standardisation, methodological incompatibility, and assimilation in the regular financial and

strategic planning procedures are critical. The results highlight the necessity to conduct longitudinal research,

cross-national comparisons, and empirical validation of digital innovations to develop the sphere and facilitate

low-carbon transitions globally.

Research Gaps and Future Directions

Future studies on the topic of environmental and carbon costing processes must shift towards the development

of standard and globally agreeable costing rules capable of minimising the levels of methodological

inconsistency and enhance comparability efficiency at the inter-industry level. It is also vital that long term

studies are required to investigate the long-term performance effects of implementing environmental and carbon

costing systems because the available evidence is partly short term and disjointed. The second potential direction

is the consideration of digitalization and how new technologies that have emerged like artificial intelligence have

the potential to increase accuracy, emission tracking and automated carbon accounting platforms to reduce

reporting costs and increase the strength of decision making. The research should also explore the obstacles

SMEs encounter which in most cases are inability to fund advanced costing system due to lack of financial

capacity, technical support and institutional support as in most cases they are involved and play an important

role in the global supply chains. Also, the connexion between the environmental costing practises and the capital

market performance is under researched, knowing how the environmentally conscious investors interpret and

price environmental cost information may help to explain why environmental cost information should be used

to value the firm, to price risks, and to invest sustainably. Comparative studies across countries are also necessary

to investigate the ways in which the global regulatory changes like the price of carbon, mandatory ESG reporting

and international standards influence adoption behaviour in various institutional settings. Lastly, the gap between

environmental costing and enterprise risk management, climate scenario analysis, and strategic cost management

tools has much room to be integrated. This kind of integration would help companies to evaluate climate related

financial risks in a more systemic way, align cost structure to sustainability objectives and enable more resilient

long term strategic planning.

CONCLUSION

This systematisation review of literature has shown that the environmental and carbon costing systems have

emerged as increasingly significant tools to organisations that are interested in aligning financial decision

making to sustainability objectives. In the literature, these frameworks are Environmental Management

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Accounting (EMA), Material Flow Cost Accounting (MFCA), Full Cost Accounting (FCA), and carbon specific

approaches, which offer systematic mechanisms of identification, measurement, and allocation of environmental

and carbon related costs. Such systems, in addition to increasing the cost visibility, also expose the inefficiencies,

aid in optimization of resources, and improve the strategic responses of firms to the climatic related challenges.

It has been demonstrated that organisations that integrate such systems tend to realise an increase in their

operational efficiency, waste management, and environmental performance, which also supports the strategic

importance of the introduction of environmental costs in the mainstream accounting. In the review however,

there is also considerable fragmentation and methodological inconsistency. The differences in measurement

methods, data quality, Scope 3 emission treatment and practise by the industry decrease comparability and

prevent wider adoption. Although new technologies - real time carbon monitoring, AI based costing tools,

digitalized material tracking, etc. - hold the promise of greater accuracy, they are yet to be empirically validated.

In addition, SMEs and the new economies are still not well represented in the literature, although they are

becoming more exposed to the global sustainability pressure. Overall, the results highlight the necessity of

standardisation, enhanced regulatory correspondence, and enhanced internalisation of environmental costing in

corporate governance, financial reporting, and strategy. To enhance the effectiveness and reliability of green

cost accounting, further research in the longitudinal effects, digital innovations, and the cross-country practise

will be significant. Consistent and internationally harmonised costing system will finally assist organisations in

shifting towards the low carbon and environmentally friendly economic systems.

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